Dead Hand of Government Impoverishes the Middle Class
by Chriss W. StreetMichael Spence, Nobel Laureate and former Dean of the Stanford Business School, has just published a rigorous economic analysis called: “The Evolving Structure of the American Economy and the Employment Challenge.” The report illuminates how the unbridled growth of government consumption spending has destroyed America’s productivity leadership, driven entrepreneurs to off-shore production, and destroyed middle class wage rates.
Adam Smith, 18th Century English economist, pioneered the concept of the “invisible hand” to describe how capitalism through self-interest, competition, and supply and demand, more effectively allocated resources than the “dead hand” of the state; it levied punitive taxes, adopted restrictive regulations, and enforced monopolies to favor their crony allies. Smith described how English entrepreneurs flourished after their King’s feudal dominance of the economy was liberated by adopting the laissez-faire economics that allowed transactions between private parties to be free from the state’s coercion. Smith described how new wealth was rapidly created and compounded over time form the productivity gains of the Industrial Revolution that leveraged the value of workers and led to higher wages.
The Spence report illuminates that from 1988 to 2008, America’s productivity dominance collapsed by 70%; shrinking from 2.5% gain per year to only .7% per year. This crash in American leadership was the result of 98% of the 27.3 million new jobs created during the period coming from the lower productivity, and thus lower wage, “consumption” sector of the economy. Higher productivity, and thus higher wage, “goods-producing” sector grew by only 620,000 jobs. The root cause of this substitution for lower productivity jobs was a 23% growth in government, to 22.5 million workers, and a 63% growth in government dominated healthcare, to 16.3 million workers. Productivity for the American goods-producing sector continued to grow by a healthy 2.3% per year, but productivity of government workers sunk by 4% and productivity of healthcare workers plummeted by 9%.
In 1988 the average value added for American workers was $75,000. Over the last twenty years, America’s revolution in information-technologies helped drive up the valued added of a goods-producing American worker to $115,200 per year. But the productivity value of government and healthcare worker tumbled to $72,000 per worker; dragging down the average value added of American workers to only $90,750. That $24,450 loss of productivity explains allot about why the American middle class wages have been shrinking in the United States.







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